Brazil Real Extends Year’s Biggest Weekly Gain on Fiscal Outlook

Brazil Real Extends Year’s Biggest Weekly Gain on Fiscal Outlook

By Paula Sambo

10:50 AM BRT
April 2, 2015

Brazil’s real extended its biggest weekly advance of the year on speculation President Dilma Rousseff is committed to shoring up fiscal accounts and preserving the nation’s investment-grade status.

The currency climbed for a fourth straight day as Rousseff said in an interview Tuesday that narrowing the budget deficit will help boost confidence in the economy. Fiscal turmoil, stalled growth and allegations of corruption at the state-controlled oil company made the real the first quarter’s biggest loser among 31 major currencies tracked by Bloomberg.

The real rose 0.6 percent to 3.1456 per dollar at 12:37 p.m. in Sao Paulo. The currency was up 3.3 percent since March 27 for the biggest weekly rally since November.

“Rousseff’s promises to restore fiscal discipline are a key to progress and should have a positive impact,” Ipek Ozkardeskaya, a market analyst at London Capital Group, said by e-mail.

Finance Minister Joaquim Levy has said spending cuts and tax increases are fundamental to avoiding a credit downgrade. He has pledged to boost the primary surplus, which excludes interest payments, to 1.2 percent of gross domestic product this year from a 0.64 percent deficit in 2014.

Rousseff said in the interview this week that Brazil will let the real fluctuate freely and doesn’t intend to intervene in the market to defend the currency.

Brazil halted at the end of March the sales of currency swaps supporting the real and limiting import price increases. The central bank extended the maturity Thursday on swap contracts worth $517.8 million.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, increased 0.05 percentage point Thursday to 13.28 percent on the contract maturing in January 2017.

As trading volume decreases before Friday’s holiday, currency volatility will probably be high, according to Ozkardeskaya. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the biggest among 16 major currencies.

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